Welcome to D.Net’s Protifolon, a new policy briefing series that highlights cutting edge thinking on the emerging issues affecting Bangladesh. This first edition examines the Global Financial Crisis (GFC) in the context of trade, exports migration and remittances and summarises recommendations for policy makers.
Protifolon Issue 1: Impact of global financial crisis on the economy of Bangladesh
1. Since the collapse of the
United States sub prime mortgage
market and the subsequent
international global crisis, many
developed and developing
countries have been plunged into
deep recession. Bangladesh
though has found itself in a slightly
different position. Its economy is
not so dependent on international
capital and foreign investment,
which has helped to lower the
immediate impact of the crisis.
Despite this the Bangladesh
government has formed a
high-level technical committee
and taskforce to monitor and
advise on the crisis, and ministries
and financial institutions have
taken several precautionary
measures. Importantly in October
2008 Bangladesh Bank withdrew
90 % of its total investment from
foreign banks which has helped to
further shield the economy, so that
it is only now that the affects of the
crisis are being felt.
Additionally the Bank has
taken measures to stabilise the
exchange rate, provide extra
liquidity to the financial sector and
raised the limit on private foreign
borrowing. It has also relaxed the
conditions for opening fresh
letters of credit (L/Cs).
In February 2009, the Finance
Minister AMA Muhith admitted
that the global financial crisis was
having an impact on trade in
Bangladesh. In April the
Government announced their
stimulus package with 65 million
dollars directed to assist exports.
This though falls short of the 877
million dollars needed according
to industry experts (Yahoo news,
2009).
During 2008, 57% of
Bangladesh’s economy was
involved in the global economy
and this is increasing. This
indicates that the country might
be progressively more affected
should the crisis continue for an
extended period. Trade, migration
and remittance are the most likely
sectors to be impacted as 43.3%
of Bangladesh’s openness is
related to trade and 10 % to
remittance. Overseas
Development Assistance (ODA)
and Foreign Direct Investment
(FDI) may also be vulnerable in the
longer term but to a lesser extent
due to only 3.2% integration with
the global economy (CPD and
ILO, 2009).
Whilst the longer term nature
of FDI commitments has kept the
net inflow of investment relatively
stable, the sluggish growth of rich
countries may eventually slow it
down. Aid receipts (excluding
dollars) are providing less in local
currency due to unfavourable
exchange rates and future aid
commitments from donors may be
in jeopardy if the downturn
continues.
01
Welcome to D.Net’s
Protifolon, a new policy
briefing series that highlights
cutting edge thinking on the
emerging issues affecting
Bangladesh. This first
edition examines the Global
Financial Crisis (GFC) in the
context of trade, exports
migration and remittances
and summarises
recommendations for policy
makers.
Overview
2. 02
Impact on trade
The health of Bangladesh’s
economy depends significantly on
foreign trade. Almost 90% of
exports are targeted to United
States, European Union and other
developed countries. Rising
unemployment, the subsequent
decline in disposable income and
declining consumer confidence in
these markets could have serious
impacts on export potential.
Although exports showed robust
growth (19.4%) during
July-December 2008, they
registered negative growth
(-1.4%) during October-
December 2008, (Bangladesh
Bank, 2009) – the worst figures in
recent history. All other sectors
also registered negative growth
during this period. The World Bank
forecasted that due to slower
activity in the export sector
services growth will fall to the
range of 5.8% to 6.7% in
FY2008.
In Bangladesh Ready Made
Garments (RMG) makes up about
three quarters of total exports.
Other major exports include
frozen foods and leather goods.
Within the RMG sector predictions
suggest that whilst overall RMG
orders may decline it may not all
be bad news. Consumer cost
cutting in the developed countries
may actually increase demand for
lower priced products (the
so-called Wal-Mart effect) – a
section of the market well suited
to Bangladesh producers.
Demand for workers has
remained steady in the RMG
sector because of the positive
growth in the second half of last
year. However stimulus packages
in competing countries are
beginning to impact the demand
for labour in the textile sector. For
example 12 spinning mills
reportedly closed as
manufacturers began procuring
yarn from India at lower prices.
(CPD, 2009)
Policy makers and other
institutions are being urged to
consider the following measures
to limit damage to the trade sector
[BIDS, 2009 and CPD, 2009]:
closely monitor the RMG
sectors particularly order
volume, export trends, export
prices and composition of
exported products
provide cash subsidy and
incentives to support affected
industries and workers
consider a low-interest credit
facility to affected frozen food
firms
provide cash incentives for a
limited period to finished
leather producers in order to
be competitive with China,
Morocco and India
withdraw duties and VAT
(Value Added Tax) on inputs
and machineries
increase the efficiency of
customs, ports, and
infrastructure
The phase of being
indifferent and complacent
is over. From the indications
that we are receiving from
the exporters, from the
migrant workers, and also
from the production sectors,
we think that there are signs
of some slowdown. It would
be smart for us to take some
steps in order to address the
emerging concerns.
Dr. Mustafizur Rahman
Executive Director, CPD
For complete interview visit:
http://www.bdresearch.org.bd/gfc
/interview.htm
Source : Freefoto.com
3. 03
Impact on migration
and remittance
Bangladesh is the fifth highest
remittance-earning country in the
world and is the second largest
sector in the country which is
integrated with the world
economy. About 1.7 million
workers left Bangladesh in search
of jobs during 2007 and 2008 and
about five million Bangladeshis
are currently working abroad,
mainly in Saudi Arabia, Kuwait and
Malaysia.
In 2009, it is predicted that the
number of workers going abroad
will be significantly lower with
UAE, Saudi Arabia, Malaysia and
Singapore already struggling with
slow economic growth and
declining demand for construction
and other services [CPD and ILO,
2009]. Overall remittances during
2008 were 37.3% higher than the
previous year but since August
2008 they showed a decreasing
trend as did the number of
workers travelling overseas
[Bangladesh Bank, 2009].
Bangladesh Bank suggests that
because the oil rich countries of
Source : Centre for Policy Dialouge (CPD)
the Middle East have
accumulated large reserves of oil,
migrant workers will still be in
demand, but a World Bank report
suggests Bangladesh needs to
create an additional one million
jobs for the people likely to lose
jobs at home and abroad (Asian
Tribune, 2009). Any downward
trend is likely to create issues for
the receiving families.
A 2005 International
Organization for Migration (IOM)
report examines the utilisation of
remittance in Bangladesh and,
drawing on varied research,
shows the impact that remittance
can have in reducing vulnerability,
providing financial safety nets and
improving areas such as access to
education and household debt.
The IOM report suggests that
the dependency on this income
can create serious issues when
the political or economic
circumstances in the destination
countries change and that “the
importance of remittances for the
receiving family cannot be
underestimated.”
For the migrants working
abroad as well, economic crises
can exacerbate already difficult
conditions as their host countries
become more constrained.
Concerns include inadequate
access to decent living and
working conditions, cuts in social
service provision, fear of
xenophobic attacks and restricted
access to worker rights (IOM,
2009). Whilst evidence for this in
relation to Bangladeshi workers is
difficult to find, it is important in
the growing turmoil to safeguard
against human right violations.
So what measures can be
introduced to protect migrantSource : IRIN News
4. 04
workers and their families? Whilst
Bangladesh Bank have sought to
improve the efficiency of
transferring remittance, the
Bangladesh Government has
devised a seven point strategy
which includes extending existing
manpower markets and exploring
new host countries in Europe.
However in April’s emergency
stimulus package remittances
were absent (New Age, 2009). To
protect migrants abroad and to try
and retain remittance levels the
Government need to prioritise this
issue.
Recommendations include:
agree steps with Saudi Arabia
and Kuwait to protect
Bangladeshi’s working there
ensure good relations are
maintained with existing
migrant destinations such as
UAE, Malaysia, Oman, and
Recommended readings
1. Macroeconomic Management in
the Face of Global Challenges,
Centre for Policy Dialogue,
March 2009.
http://cpd.org.bd/downloads/M
acro-Management.pdf
2. Global Financial Crisis and
Bangladesh, Bangladesh
Institute of Development
Studies, March 2009.
http://www.bids-bd.org/images/
pre_GFC_16Mar09_Ahsan.pdf
3. Navigating the Global Financial
Storm: Challenges for
Bangladesh, Bangladesh Bank,
November 2008.
http://www.bangladesh-bank.or
g/research/policypaper/pp0903.
pdf
4. Impact of the Global Economic
Crisis on the Employment and
Labour Market of Bangladesh,
Centre for Policy Dialogue,
January 2009
http://cpd.org.bd/pub_attach/o
p80.pdf
5. Global Financial Crisis: Impact
on Bangladesh, D.Net
Bangladesh, October 2008
http://www.bdresearch.org
6. National Policy Responses to
the Financial and Economic
Crisis: The Case of Bangladesh,
ILO, January 2009
http://www.ilo.org/wcmsp5/gro
ups/public/---asia/---ro-bangko
k/documents/meetingdocument
/wcms_101570.pdf
7. Bangladesh Economic Update
world Bank, 2009
http://www.adb.org/Documents
/Economic_Updates/BAN/2008/
QEU-Dec-2008.pdf
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The views expressed in Protifolon do not necessarily reflect those of D.Net or IDS.
References:
Asian Tribune (2009) World Bank suggests Bangladesh to create 1 million additional jobs for people
likely to lose jobs at home and abroad URL: http://www.asiantribune.com/?q=node/16786
Bangladesh Bank (2009) Bangladesh Bank Economic Trends; URL:
http://www.bangladesh-bank.org/pub/monthly/econtrds/econtrds.html
Centre for Policy Dialogue (2009) Macroeconomic Management in the Face of Global Challenges;
URL: http://www.cpd.org.bd/downloads/Macro-Management.pdf
Centre for Policy Dialogue and International Labour Organization (2009) Impact of the Global
Economic Crisis on the Employment and Labour Market of Bangladesh; URL:
http://www.cpd.org.bd/pub_attach/op80.pdf
International Organization for Migration (2009) IOM (2009) The impact of the global financial crisis on
migration; URL:
http://www.iom.int/jahia/webdav/shared/shared/mainsite/policy_and_research/policy_docum
ents/policy_brief_jan2009.pdf
New Age Business (April 2009) Stimulus fails to satisfy exporters;
URL:http://www.newagebd.com/2009/apr/20/busi.html
Yahoo News (2009) Bangladesh unveils 500-mln-dlr stimulus package; URL:
http://news.yahoo.com/s/afp/20090419/wl_sthasia_afp/financeeconomybangladeshstimulus_
20090419113815;_ylt=AtvG3srd4SYuAbp9zGMHy4AAS5Z4
Qatar through diplomatic
intervention
examine further alternative
migrant destinations including
Iraq, Bahrain, Mauritius,
Sudan, Libya, and South Africa
seek technical and financial
support from the ILO and
initiate memorandums of
understanding (MOUs)
between Bangladesh and the
destination countries of the
migrants. These MOUs could
contain basic rights such as full
wages every month and safe
working conditions
For returning migrants
provisions should be put in place
to assist in their repatriation,
reception and reintegration and
Official Development Assistance
(ODA) could be increased to
create employment opportunities.
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